How Dare The WSJ Blame The House GOP?

The Wall Street Journal this morning excoriates House Republicans for mishandling the payroll tax holiday:

The GOP leaders have somehow managed the remarkable feat of being blamed for opposing a one-year extension of a tax holiday that they are surely going to pass. This is no easy double play

True that. But if anyone is to scold on this score, it should not be the Journal – which is as responsible as any of the House members for the GOP’s payroll-tax predicament.

The GOP is in trouble because deep down, Republicans do not want to do the payroll tax holiday. They ignored the idea when it was first floated back in 2009 by conservative economists as an alternative to a spending-side fiscal stimulus. Not until President Obama adopted the idea as his own in 2010 did congressional Republicans grudgingly join in support. In the year-plus since then, Republican talkers have denigrated the holiday as ineffective and worse.

The Journal was very much one of those denigrators, and it repeats the denigration in today’s editorial:

No employer is going to hire a worker based on such a small and temporary decrease in employment costs, as this year’s tax holiday has demonstrated. The entire exercise is political, but Republicans have thoroughly botched the politics.

So the Journal does not come to this debate with clean hands. The Journal is blaming House Republicans for believing things the Journal itself taught them to believe.

I’ve been an advocate of the payroll tax holiday for a long time, but I’ll concede the Journal this much: the holiday in itself is no silver bullet. It has to be joined by vigorous monetary measures and (sadly but probably) more government infrastructure spending if we are to jolt employment numbers upward.

Yet here again the Journal does not come with clean hands. If the payroll tax holiday is not a sufficient answer of itself, it remains a huge improvement over the various remedies proposed by the Journal, which would actively deepen and prolong the slump: tighter money and large, immediate cuts in government spending.

The Journal also of course as always favors tax cuts too. But not this one. The payroll tax holiday is the rare example of a tax cut the Journal strongly dislikes. In today’s editorial, the Journal suggests that its dislike is based on the holiday’s temporary nature. Yet the Bush tax cuts of 2001 and 2003 were temporary too, and that time limit did not disqualify them in the Journal’s eyes.

I sense a different motive.

The payroll tax holiday depletes the Social Security trust fund. Eventually the money will have to be recouped. How? Republicans fear that the money will be recouped with higher taxes on higher-income earners. They foresee the day when Democrats demand that the fund be replenished either by lifting the cap on payroll taxes–or by some kind of surtax on high earners–or (worst of all!) by merging the Social Security system with general federal revenues and outlays.

I foresee that day myself, and I worry about it. That’s a reason that I so strongly favor carbon taxes or consumption taxes or some other form of non-redistributive federal revenue source. The US government of the 21st century will need considerably more money than it collected in the decade of the 2000s, and–RINO though I am–I very much prefer that money be collected in some way other than an increase in the top marginal rate of income tax or a higher capital gains tax rate.

But I can foresee and discuss the problem because–unlike House Republicans–I am not in thrall to another Journal teaching: the claim that the poorer 47% of Americans “pay no tax.” This claim rests on denying the existence of payroll taxes altogether. If you deny that payroll taxes exist, it becomes very difficult to discuss the consequences of reducing or remitting them, including some arguably serious long-term consequences.

The Journal’s 47% myth ties the tongues of House Republicans and pushes them into a quandary where they cannot speak openly about their concerns about a measure they dislike. They then take refuge in bogus concerns about how the tax cut is to be “paid for”–even as they passionately deny the need to “pay for” any of the tax cuts they favor–and with their own shoelaces thus absurdly tied together, naturally they trip over their own feet.

All that is bad enough. But having tripped over their own feet, it must be very galling for House Republicans then to be jeered at by an editorial page that almost more than any other entity, was the party responsible for the lace-tying in the first place.

It’s hard for Republicans to articulate those fears, however, because to do so would require them to relinquish one of the party’s central conceits–a conceit propounded by nobody more forcefully than the Journal itself. That is the conceit that 47% of Americans “pay no tax.”

That 47% do pay taxes, of course, and the heaviest tax they pay is the payroll tax. Admit that fact, and a favorite talking point–plus a big chunk of the Wall Street Journal editorial page’s ideology–goes poof up in smoke.

UPDATE: TPM adds the important point that the Wall Street Journal, America’s leading economic newspaper, completely botched the details of the payroll tax holiday.

122 Comments so far ↓

Please explain to me something that you apparently consider taboo. Say the government needs to collect 1000 units in taxes. Now say the targeted base for taxation are 10 people with varying degrees of taxable income and wealth. If one of them has 50% of the dough in circulation, how are you going to avoid taxing that one person more in order to get your needed 1000 units? The math is simple. Any first year math student could come up with a solution to this problem. I have never, ever met a person who choose not to pursue wealth because of the marginal tax rates of the last 50 years or so. Even the Beatles kept writing songs despite Georges lament “one for me nineteen for you”.

I tried having this discussion with a right-winger once. They threw out some statistic (which I could not verify at the time) about the top whatever percent paying 30%(or whatever) of the taxes. I responded that they earned about 30% of the income to which the person responded “So?”. I walked away from that one.

There is no taxation system that everyone will think is fair. That’s not an excuse for not trying to create something better than what we have now.

I think it’s rather obvious that the reason the bottom half don’t pay much in taxes is because they don’t make very much money. But focusing on increasing their wages gets me labeled as a socialist in right wing circles. I now try to avoid conversations with anyone who watches Fox News. It’s like talking to someone in a cult.

A good teaching moment well-taught. Your crystal ball must be glowing red with all that foreseeing business but it illuminates a quagmire for me. Who would have ever predicted a chism between the WSJ and a Republican congress. I swoon.

The WSJ is starting to panic that the current trends are in favor of Obama.
Poll numbers are starting to move his direction.
The Polls that ask Americans about policies have been in his direction for some
time now (pay for things with slightly higher taxes on the rich, etc.) but now
other polls are starting to move his way. The House GOP just doesn’t seem
to want to listen to American’s opinion as a whole, just their little pocket of them.

Here is my take on this whole thing.

1. To be in favor of the payroll tax holiday you have to accept the idea that
one of the major problems with our economy is decreased demand by
consumers and businesses. To increase that demand there needs to be more
money spent by consumers which will cause businesses to produce more and
hire more and purchase more materials from other businesses.
So, it would seem, that whatever stimulative measures are taken have to put
money into the hands of people who will spend it.

2. The GOP for whatever reason has been sold on the idea that everything has to
be paid for and deficits should not go up even if experts say that paying for things
now may actually hurt the economy. The GOP currently owns the
“Deficits are bad” stance. Democrats have decided to slide that way but I would
claim that their stance is “Deficits are bad, but…” where the but can take on
many forms. “but, they don’t have to be dealt with today.” or “but there are ways
to pay for them that won’t hurt the economy, like small increases in taxes on
rich who can afford it and it wouldn’t take as much money out of the economy.”

3. It may have to get much worse before it gets better. Can we foresee a House Speaker
power play in 2012? Boehner seems really weak right now and his caucus seems
to be controlling him. Whenever he has seemed close to a compromise with Obama
or the Senate on something moderate he has been reeled back in by his caucus.
And who is at the head of his caucus. It certainly seems to be Cantor. Can we even
imagine a GOP House with Cantor as Speaker? Would anything ever get done in
2012 if that happened.

There is no such thing, and there never has been, and you don’t want to live in a place where there is. Scratch that, maybe in the Ice Age there was economic equality as no one had anything, but I guess that’s my point.

Two points. First, the WSJ is quite open about why it opposes any policies advanced by President Obama. At issue is not policy, but politics. The entire editorial is about political positioning, and not any economic policy.

Second, I note your comment that, “That’s a reason that I so strongly favor carbon taxes or consumption taxes or some other form of non-redistributive federal revenue source.” All taxation and expenditure is about the distribution of public goods – and all taxation and public expenditure has redistributive impact. A carbon tax redistributes from high carbon users to low carbon users; a consumption tax redistributes from those who spend a higher percentage of their incomes on consumption (the poor) to those who don’t (the rich). So let at least be honest about the nature of redistribution, rather than deny outright that any redistribution is taking place.

Good points. Most editorials in favor of the recent GOP tactics have been focused on politics, not the quality of policy. That is extremely tragic.

I also agree that the simplistic term “redistributive tax” is misleading and a roadblock to progress on many policy issues. “Redistributive tax” could just as easily be called “any incentive or disincentive”. Can we, as a society, incentivize anything or are we doomed to sit passive while the world changes around us?

The analogy I like to use is that of markets as weather. You can’t change the weather. It is an emergent force of nature. You have to learn to live in harmony with it. But you can also shelter yourself from the harshest outbursts. Only a fool exposes himself completely to the full power of a storm and only a fool fails to build stronger shelter after a storm.

Honestly, I can’t even believe I am writing this stuff. As I read back what I’ve written lately it is truly shocking that I am now advocating more regulation and trust in government (the opposites of my traditional policy stances). But times change. The modern GOP has gotten so extreme and taken reactionary positions so out of whack with reality that one must eventually draw the line. Policy positions only make sense in relation to current events.

Because, Mr. Frum, it is their fault. Regardless of what the WSJ may or may not have posted in its editorial pages, I doubt anyone from the publication was lurking around in the offices of the Republican members of the House of Representatives, sporting a threatening scowl, brass knuckles, and a promise of mayhem if the Representatives didn’t vote the way that the WSJ told them to.

The main issue behind the current tax holiday fiasco, the real issue in my opinion, is buried in the WSJ article. To quote: The House passed a one-year extension last week that included spending cuts to offset the $120 billion or so in lost revenue, such as a one-year freeze on raises for federal employees.

Those spending offsets included a variety of poison pills that the Democrats would never accept, such as an attempt to cut down unemployment benefits to 58 weeks nationally. I can’t immediately recall the substance of the rest of the poison pills which were inserted, but there were a number of items which the House Republican leadership knew would never, ever fly in the Senate. They sent the bill over anyway, hoping (as they have in the past) that the Democrats would feel such pressure that they would pass the items on the extreme-conservative wishlist. Republicans have used this tactic several times in the past – for example, with the recent debt ceiling debacle.

When the bill reached the Senate, the Senate stripped out most of the poison pills. A provision was included for the oil pipeline from Canada, but the remainder of the wish-list items were dropped. The Senate sent the bill back to the House and went home.

The reasons the House Republicans have given as their concerns, such as the ones listed in the article you have written, aren’t the real issue with the bill, (at least in my opinion.) As far as I can tell, the House Republicans are upset that they aren’t getting the items they submitted on their wishlist, and are throwing yet another tantrum over their absence.

The difference is that, upon this occasion, the Democrats are in a position to allow the “hostage” to be “shot.” (As an aside, I wish I could find a more accurate, but still G-Rated, phrase to describe the way that the Republicans have conducted themselves over the past year. I don’t like the term, “shoot the hostage,” but it really does describe their attitude, and I haven’t found a better description. “Extortion” doesn’t quite work.)

I am not saying that the WSJ is free of hypocrisy in the entire affair. I am saying that, regardless of its past editoralizing, it is correct to blame the Republicans in this specific instance. I will say again: it is their fault.

Jen
PS. Hope this comment is OK. I have lurked on this site for more than a year but haven’t posted a comment previously.

PPS. By the way, thank you for continuing to debunk the “47% of Americans pay no tax” meme that continues to float around. It is completely inaccurate and its constant repetition drives me crazy! I hope that it will fall out of favor someday.

Well, you do know these Republicans signed the Norquist pledge, right? That’s just one of the forces that moves them. The other is Wall Street, that geographic location that gives the WSJ it’s name. Aside from their intermittant romance with the Religious Right, AEI and Heritage complete the school picture of whom the Republicans regard as their handlers since, once they leave congress, they’ll be working for one or all of them like Newt Gingrich does.

I think the larger point is that the WSJ editorial page has NEVER accepted blame for the their policies when they go bad. They simply ignore the negative effect and then continue to advocate the same positions. The payroll tax cut is just the lastest example.

- They pushed for the bush tax cuts without ever insisting that they be paid for and then complain about budget deficits.
- They’ve pushed for decades for deregulation of every industry but have never admitted their roll in the economic crisis.

I think some of Frum’s point is that WSJ shares responsibility for getting these very right wing and rather politically naive House members voted in, then apparently they are so, so surprised that said House members go about doing rather politically naive things.

The Frankenstein effect.

That struck me on reading the article, my reaction being “well, careful what you ask for”. My other reaction regarded their lament that the payroll tax holiday has been re-named “tax cut” for the rhetorical purposes of the Democrats. Well, they’re right, but completely disingenuous. Being as all their rhetoric proceeds as if the Bush tax cuts of 2001 and 2003, both passed though reconciliation, were permanent, and they haven’t exactly objected to Grover Norquist’s rather expansive definition of tax increase either.

Long time lurker, first time commenting. Here’s the US House Republican Party’s own summary of their original 12 month pay cut extension that they passed and sent to the Senate, but which the Senate could not pass, so the Senate instead passed a simple 2 month extension, and stripped out the odious House poison pills listed on this “summary”(except some oil pipeline language).

You can also submit a comment on the House Republican’s page regarding this bill.

As to the “payroll tax holiday hurts Social Security argument” – Social Security ran a surplus for decades. Where is that money? The answer is, it went to the general fund and got spent (and then some). If money can so easily leak out of the trust fund, maybe some can leak back.

Rover, I have to disagree with you. Social Security ran a surplus and then lent the money to the General Fund under a legal obligation and earns interest for doing so. The GF has a legal obligation to pay that money back to SS with interest, one of the ways that SS generates additional revenue for retirees.

It wasn’t the money went to SS and then gets siphoned off under the cover of night, never to be found again.

LFC and T4Y – Bingo. You have just described the entirety of current politics. (LFC, I think you meant to say unthinkable that they wouldn’t pay?) The SS trust fund surplus was borrowed to pay for the Bush tax cuts, two wars, and Medicare Part D. There is a legal obligation to pay it back. Unless and until some Congress says there isn’t a legal obligation. The Republicans who took the money have every intention of stealing the money by welching on the loan. And virtually everything they do or say is ultimately aimed at accomplishing that theft.

Actually, it was under Reagan that the SS trust fund was moved to the general fund. After Reagan renegotiated the SS income deal to insure its solvency, he got Congress to okay borrowing the trust fund (i.e. moving it into the general fund) to make his deficits look lower than they would have been without the trust fund money.

The difference is that the trust fund isn’t borrowing from the general fund for this cut, the general fund is simply paying for it. No one has their future benefits from this or last years earning changed at all because of the cut. While the payroll taxes are cut the obligation from the general fund to the Social Security Trust fund make up for that loss as if there was not cut.

In reality that makes this actually a general fund tax cut that uses the Social Security taxes as its mechanism. But that reality doesn’t square from what I understand happen to those not in the Social Security system. They are excluded from a tax cut that comes from the general fund because the mechanism is one they don’t participate in.

consumption taxes or some other form of non-redistributive federal revenue source

Ah, George Orwell would be proud. Consumption taxes, of course, are redistributive in the literal sense: they disproportionately target the poor and middle class. But that’s a good redistribution, as distinct from taxing capital gains and dividends at the same rate as labor, which is a bad redistribution. Or something like that.

The US is continuing to spend more than it takes in as evidenced by the huge trade deficit. Allowing lower wage workers to continue the difference between their discretionary consumption and their productivity just puts the country in a deeper hole.

On average, handing out dollars to financially illiterate people make problems worse, not better.

A two-month extension is not administerable from a payroll perspective. Harry Reed will be forcing a lot of software changes and headaches to small businesses.

“Payroll people feel like their concerns are not heard at the congressional level sometimes,” said Mike O’Toole, who oversees government relations at the American Payroll Association. “Or else, Congress wouldn’t even consider something like a two-month extension that in the end is going to cost companies more money to pay for reprogramming systems.”
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Allowing lower wage workers to continue the difference between their discretionary consumption and their productivity just puts the country in a deeper hole.

Nice switch from “productivity” to “income.” Of course, income has stayed the same for thirty-plus years while productivity has skyrocketed, but most people won’t notice the sleight of rhetoric.

Anyway, by all means blame the trade deficit on the people who work full time and still only feed themselves thanks to food stamps and EITC. It can’t have anything to do with our “strong dollar” policy for those same thirty years.

Those losers should instead do the decent thing and die so there’s more for the rest of us.

“The US is continuing to spend more than it takes in as evidenced by the huge trade deficit.”
– No evidence of everspending is in deficit spending, not the trade deficit. That is evidence that the US buys more goods from foriegn sources than it sells to foriegn buyers.

“Allowing lower wage workers to continue the difference between their discretionary consumption and their productivity just puts the country in a deeper hole.”
- Do you have evidence that lower wage workers have a difference between their consumption and productivity? What is the link between those two? By productivity do you mean what they earned or how much they were paid? Many lower wage workers live modestly and below what they earn (which is really different from their productivity). Which hole are you talking about lower workers creating for the country? US families have deleveraged personally (smaller hole) over the last 3 years than at any time in recent history. Are you blaming the “hole” on lower wage workers?

“On average, handing out dollars to financially illiterate people make problems worse, not better.”
– Blanket statement that is not factual. What do you mean by handing out dollars – this article was about a payroll tax holiday extension. Whom should we hand dollars out to – financially literate people like Jon Corzine (who apparently misplaced a billion dollars) or Donald Trump, serial bankrupter? (there, I picked on a Dem and GOP at the same time).

A two-month extension is not administerable from a payroll perspective. Harry Reed will be forcing a lot of software changes and headaches to small businesses.”
- As Otto noted, the tax holiday is already in existence. Nothing new needs to be done.

“– No evidence of everspending is in deficit spending, not the trade deficit. That is evidence that the US buys more goods from foriegn sources than it sells to foriegn buyers.”

Decades long and increasing trade deficits are a clear indication of an economy in trouble. I’m not surprised that you do not recognize this. Keynesians typically ignore it until the economy goes nonlinear as is happening in Greece.

“On average, handing out dollars to financially illiterate people make problems worse, not better.”– Blanket statement that is not factual.

My statement is that it is generally accepted that markets work best when financial decisions are make in a financially literate manner rather than a financially illiterate manner. Federal Spending is running at 25-26% of GDP while taxation is only at about 14-16% at the same time that that comparative value of American labor as compared to the global market is declining. These gaps result in a growing over half trillion dollar per year trade deficit.

Economics 101 is goods, labor and capital.
An economy consumes and an economy produces.
An economy loses wealth when it has decades of consumption greater than production and the production capacity is not improving.
Measuring the prolonged trade deficit is a good way to measure the total.

The emphasis on growing the economy by building housing and financial services and coffee baristas did not help the trade deficit- it only increased the gap and reduced the accumulated wealth.

A growing percentage of goods like oil and coffee are being purchased for economies with less costly labor than in the US. If an economy’s aggregate labor value and export product value is not rising as fast as the cost of goods imported, then the economy is losing real wealth. In last 40 years, the US economy propensity to consume more than it produces has moved more than a billion people globally from poverty into the skilled middle class. The stagnation and erosion of the purchasing power of the US middle class is directly related to size of the global skilled middle class. The US cannot continue to be a net importer forever- no country in history has ever survived that way.

Until US energy production balances with US energy consumption, the US wealth will likely continue to decline precariously.

The Democrats need some fresh memes and talking points. They have used twists and variations on the same basic point for too long — “the GOP wants to do X to benefit the wealthiest Americans.” While their point is true, it hasn’t helped them win the propaganda war against the apologists for plutocracy like Karl Rove, Grover Norquist and the WSJ.

well, if what are you doing is making your poll numbers go up and your opponents go down I would say that is “winning” the argument so why would you want to “change the meme”? The Dems are finally getting traction on this and it is working. OWS had some part in changing the dialogue in the country and this is playing off of that nicely. Remember prior to this ‘meme” we were talking about defict reduction as if that were the most important thing on the planet. That clearly was a meme that favored the Republicans. You don’t hear too much about that now. It’s all about jobs, income inequity and fighting for the middle class. Those are winning issues and the Obama team has it right to pound away on those points.

No, I don’t think it’s particularly great news for the country. The GOP will probably control one or both chambers ensuring 4 more years of what we have now. Assuming at least partial GOP control, what do you imagine he will be able to do once he is reelected?

I think to a degree at least that DSP is correct. The Dems – and Obama – could really use a word spin meister like Luntz. Part of the reason the GOP has been able to win so many policy battles is that they’ve been able to rename issues to evoke emotional sentiments among voters that conform to policies the GOP wants, i.e. job creators instead of milllionaires or hedge funds, or death taxes instead of inheritance taxes, or entitlements instead of earned benefits.

The Democrats actually need to keep repeating that message – loud and consistently – for two reasons.

a) because the more it gets repeated, the deeper it sinks into the American consciousness. The demonization of the term “liberal” didn’t happen overnight, for example – it took a 30-40 year concerted effort to make it where people who overwhealmingly support liberal policies (progressive taxation, strong social security and medicare programs, environmental protections that put restrictions on the rights of polluters and property owners, reproductive choice, etc) are afraid of calling themselves liberal in public. But hard right conservatives worked long and hard on that effort, and it has paid off.

b) The Democrats actually need to keep reminding themselves where the lines lie between being a Republican, and a Republican-lite, and a Democrat. If you keep favoring policies that just direct LESS of the nations wealth to the wealthy while working families are going under, instead of pushing for a truly sustainable level of wealth distribution, you’re never going to really accomplish much.

Very good points. When I said the message has not worked, I really had in mind the long term trend — something you speak of often — how the GOP for decades has steered people into voting against their economic interests by bombarding the public consciousness with superficial and misleading ideas that mask their real agenda. In taking this longer view, I think Norquist and the rest have clearly won the propaganda war and that the Democrats’ main meme during this period (variations on “the GOP represents the rich”) definitely has not worked. The GOP somehow manages to keep winning elections. Maybe this dynamic will finally change because OWS is bringing forward the most important issue facing the country, wealth inequality.

I see the issue slightly differently. I think the Democrats have been
wandering for years trying to find their voice. And now they have
settled on the inequality and GOP favoring the wealthy theme.
One problem the Democrats have had is that they tend to not
be as cohesive a group as the Republicans.

On the flipside, I think one fault with the GOP is that they have
grossly misread their gains in 2010. They really thought it had
more to do with the words that were coming out of their mouths
and less to do with the suffering at the time. When people
are suffering in a bad economy they tend to want change.

“On average, handing out dollars to financially illiterate people make problems worse, not better.”

Hear that all of you 160,000,000 hard working Americans? Giving you some of your own money back will make problems worse because you are financially illiterate. Not like those Wall Street geniuses that did so well that us financially illiterate people had to bail them out in 2008/9.

The contempt the right has for people that work for a living is remarkable. And despicable.

Your post is both ad hominem and inaccurate. So where does that leave you, (self-described) Martini sipping Elitist?

Of course, you know that the tax reduction is vote pandering by both parties that goes completely against the recommendations of the President’s Bowles-Simpson fiscal panel recommendations.

Pandering/buying votes is all Obama has left after failing miserably economically. Of course, he will probably rig the Fed to goose the economy at the most opportune point to assure reelection. Independent voters might buy in to it. They are generally short term focused.

“Of course, he will probably rig the Fed to goose the economy at the most opportune point to assure reelection.”

Interesting: nhthinker has an idea for a can’t-fail Fed action that will dramatically improve the economy. Why don’t you share this knowledge, rescue us all from the morass we are in, and become a national hero? Or is this knowledge similar to John McCain’s super-secret, guaranteed-to-work plan to get Osama bin Laden – just to precious too talk about.

Putting dollars in the hands of financially illiterate people is worse for them, perhaps, but better for the economy because they spend it all and save none of it! How basic is that? I knew that when I was still peddling newspapers.
Also, your inference that the financially illiterate are strictly middle class or lower is not only wrong but it lets me know that yes, you are financially illiterate, or maybe just naive. Either way you’re wrong and a predictable ideologue at the same time.

I guess you don’t know what ad hominem is because you actually presented a reasoned argument…Inaccurate of course, but at least you tried to use reason.

Real improvement to an economy:

a) improves the skills of the work force
b) improves the efficiency of use of resources
c) creates more global competitiveness

Are you interested in real improvements to the economy or just a continuation of the erosion of the wealth of the US through overspending on continuing to prop up an inefficient and wasteful economy that has been back sliding for the better part of 40 years? If its the latter, then giving more cash for financial illiterates to spend is what you should continue to advocate.

“I don’t subscribe to the view that when you cut taxes or when you maintain a tax situation like we have today, when we’re actually talking about a situation where Obama is going to increase taxes, that you basically have to pay for keeping taxes at the current level, I just don’t subscribe to that view.”

Oh wait, my mistake. Those are from LAST YEAR. You know, when Republicans had a 180deg different opinion on “paying for” tax cuts.

By the way, DF, you might not be cynical enough to admit it, but I have a feeling that Republicans are against the payroll tax cut primarily because it benefits EVERY working American. The Bush tax cuts were great since they only went to the upper ~60% or so who pay Federal Income Taxes (using the 53% number plus however many people would go from paying taxes to not paying taxes under the tax cut). Plus, the richer someone is, the MORE they got back under the tax cut. Peons? $600. Millionaires? $100,000.

The payroll tax is the opposite: One, it affects every single working American, whether they’re making $10k or $10m per year. Second, it only goes up to the $106k cap. So, a person making $106,000/year is going to get the exact same tax cut as someone making $10,000,000 per year. The only thing is that it’s a far higher % of the person making $106k than it is for the person making $10m.

So, the cynic in me says that since last year’s tax cut primarily benefited the upper-middle and upper classes, the GOP was for it. Now that there’s a payroll tax cut that primarily benefits the lower and middle classes, the GOP’s against it. Could it be that simple? No clue, but I can guarantee you that’s how the Democrats are going to play it…

“So, the cynic in me says that since last year’s tax cut primarily benefited the upper-middle and upper classes, the GOP was for it. Now that there’s a payroll tax cut that primarily benefits the lower and middle classes, the GOP’s against it. Could it be that simple? No clue, but I can guarantee you that’s how the Democrats are going to play it…”

Nobody thinks, do they, that the payroll tax holiday is intended to create jobs, so why would the WSJ make a point of saying it won’t create jobs. It’s putting a little more money in the hands of people who are already working and their employers, both of which groups are mostly using that money to continue de-leveraging.

Does the WSJ really believe that cost of employment is what is keeping people from getting hired? They really have gone downhill since what’s-his-name bought them.

It’s actually a complete falsehood / strawman argument on the part of the WSJ (not that that’s surprising). The current proposed payroll tax cut extension DOESN’T apply to the employer-paid portion. The Democrats proposed that and the GOP blocked it. So there is no employer-benefit to the payroll tax cut, it’s 100% employEE focused.

The point of it was never to encourage employers to hire, it was to put more money back into people’s hands so that they would SPEND IT and generate GDP growth. It’s more Keynesian economics, but one that Republicans normally would support (Keynes agreed that tax cuts spurred the economy, but thought that government spending spurred it more).

Of course, since this tax cut a) primarily benefits the middle/lower classes and b) is pushed for by Obama and the Democrats, suddenly the Republicans are against it.

DF is completely accurate. The Journal ed page have long excoriated the payroll tax holiday and now it’s come back to bite them. Overall this is a monster FUBAR for the GOP and as of right now I see no way the Republicans can reverse the change which will become effective on Jan 1 although they may try and cobble together some retrospective legislation early in the new year. Hilarious and a very neat bit of jujitsu by Reid and the White House which keeps the spotlight on this issue for months and plays right into what is clearly going to be the Democrats election strategy for next year. No wonder Obama’s back at around 50% appro in two polls!

I guses it was only a matter of time before House Republicans became comical. Everyone knows how this is going to end; like Wile E. Coyote in mid-air holding a puny “Help” sign before disappearing in a cloud of dust on the canyon floor.

“No employer is going to hire a worker based on such a small and temporary decrease in employment costs…”

There is no decrease in employment costs with the payroll tax holiday. The tax holiday is a tax cut on the employee contribution rate to SS, but does not affect the employer’s contribution. I’m surprised the WSJ seems unaware of the nature of the tax cut. If they don’t know this, then how can they make any argument against it?

This is an odd bit from Gingrich.
If I tried to paraphrase, it would go like this:
“The House GOP should stop playing politics, they can’t win this one.
They should just do what is right for America and take the 2-month
compromise.”

So, only when you know you can’t win, you should stop playing
politics and do what is right for America. So, if you can win,
you don’t have to do what is right for America?

- The Republicans have no problem pushing and demanding immediate action when it comes to tax breaks for the wealthy.

- But as soon as the middle class will be the primary recipient of tax breaks all of a sudden the Republicans demand that they be paid for, that they load up the bill with everything they can think of on their wish list and will simply tell the Middle Class if you don’t give us everything we will let your taxes go up – but don’t worry – if Paris Hilton and Warren Buffet are threatened with a tax increase we will be immediately on it and will do everything with no strings attached to keep their wallet from being picked by the evil government.

You know what? I think that I might have just seen the first *glimmer* of a spine in the Democratic party. For all of the ineptitude on the Republican side, I am almost wondering if this is the first time that I’ve seen them *actually* play political hardball.

Democrats were never *that* interested in extending the payroll tax cut. What they were interested in was having the tax cut extension FAIL and then blame it on the “obstructionist Republicans”.

Step 1: Obama states that the tax cut extension must go through, but that it can’t add to the deficit. Obama looks like he’s fiscally responsible, and is also pushing for a tax cut for the middle class.

Step 2: Senate Democrats put forward a bill that not only has the payroll tax cut in it, but pays for it through a tax hike on the rich. This allows the Democrats to:
a) Reinforce the idea that they are the party of the middle class
b) Tie the payroll tax cut (popular) to hiking taxes on the rich (popular as well)

Step 3: Watch the Republicans squirm. If the Republicans reject this, they’re painted as the party of the rich and anti-middle class. Taxes go up on 160,000,000 working Americans who will, by and large, blame the Republicans. If Republicans fold, they lose all credibility with their ultra-conservative base.

The Democrats get to paint themselves in one swipe of the brush as the party of: Fiscal Responsibility, the Middle Class, and Cutting Taxes on most Americans. They get to paint the Republicans as the exact opposite of those three.

Under any circumstances this would be my first assumption, but the Democrats are so spineless and clueless they couldn’t have planned it…. could they?

Well, begging the question of whether or not the Democrats as a whole are that smart… the GOP and Obama haters here have long been playing the “He’s out of his depth, he’s not that smart” card, while Obama has consistently made them look like buffoons, this issue being the latest.

I am not an Obama supporter, but do you have to cripple yourself and your efforts by refusing to acknowledge that he’s a shrewd politician? Sheer insanity. He’s smart and cagy – you want to take him on, bring your A-game.

And the GOP doesn’t seem to be able to play A-ball anymore; they’re caught in a maelstrom of reality denial, Rove-ian demonization, white resentment, and obstructionism.

It’s funny but I find myself to the Right of Frum on this (Even though he is absolutely correct about the WSJ).

I disagreed with the payroll tax holiday when first enacted and disagree with it’s extension. My local news keeps interviewing “the man on the street” about how they like the fact that the gov’t is going to raise their taxes and take $1,000 per year out of their pocket.

First, in my view this hurts SS hugely in the long run. Second, once it was enacted, it’s hard to reverse so the damage gets multiplied. Lastly, if you only make a little money (say $25K per year, the cost is minimal ($42 per month) and if you make a lot (say $100K), the cost is $167 per month, but you should be able to afford it.

I disagreed with this for the same reason I disagreed with Bush’s tax break that sent me $300 bucks – it blows a hole in the budget that will cost us much more than that to figure out in the future.

The GOP Congress totally screwed this up (as they have almost everything) and the Dems will make political hay – but I would have rather had the extension naturally end when scheduled.

I disagree with most of the conservative posters on here on almost everything. But I do think we ought to pay for the services we provide to our citizens.

In the short term, the economy needs growth to get people back to work. Tax cuts will do that, but it’s not the best way. Increasing government spending will give you more punch for your money. However, with gridlock, that option is no longer possible .

Debt reduction should be a long term goal, and policies for that should be implemented when the economy has fully recovered. These are simply not the right times for such policies.

Republicanism requires individuals to maintain the myth that the system is fair and that people get what they deserve. Thus, when Republicans so vehemently demand the Bush tax holiday extension (remember it too was supposed to be temporary), but not the payroll tax holiday, the myth gets exposed.

There is a strong argument to be made that payroll taxes should not be counted as taxes because the taxpayer receives SS benefits for the payment. Bruce Bartlett, a contributor to this site and a constant critic of GOP tax policy has argued as much in the NY Times.

Mr. Bartlett wrote:

” Another issue is whether the Social Security tax is really a tax at all. A case can be made that it is really part of a worker’s compensation, rather than a reduction of it – because the workers generally get back all of their contributions, plus more, in the form of Social Security benefits in retirement.

Although counterintuitive, economic research supports this view of the Social Security tax. In a 1999 paper for the World Bank, Peter Orszag and Joseph Stiglitz argued that Social Security was essentially a forced savings program that doesn’t necessarily reduce labor supply at all. In a 2004 article, Richard Disney supported this argument:

To the extent that pension contributions are perceived as giving individuals rights to future pensions, the behavioral reaction of program participants to contributions will differ from their reactions to other taxes. In fact, they might regard pension contributions as providing an opportunity for retirement saving, in which case contributions should not be deducted from household’s earnings and should not be included in the tax wedge.

To the extent that workers perceive a linkage between the Social Security taxes they pay and the benefits they receive, the Social Security system reinforces work incentives rather than being a tax on work, as is commonly believed. If this is true, then workers may well view a cut in Social Security taxes as diminishing their future benefits, which may cause them to increase their saving rather than spend the additional cash flow.”

To the extent that workers perceive a linkage between the Social Security taxes they pay and the benefits they receive

You don’t know many people that actually work for a living do you?

There’s really only one number on the check that is important and it’s the one that goes into their bank account. Anything that increases that number will obviously increase their spending because it will give them more money to spend.

If humans behaved like you surmise, we wouldn’t NEED a Social Security program at all. People would be able to accurately anticipate their future needs and automatically save enough for their retirement. But real people don’t do that, because people are not wired to prepare for events decades in the future (even if they were prescient enough to know what that future will be).

Some of it is likely also generational. As a Gen-X/Gen-Y “cusper,” I’ll tell you what I’m planning on:

Not getting a dime from Social Security.

As folks from my generation begin to earn more, have children, etc. and get into the mode of actually being, you know, grownups with real responsibilities, I doubt very many of them will put their faith in the Social Security system. Or in Medicare, for that matter. The general consensus among people my age is that the Boomers are going to not merely suck the system dry, but then turn to us to pay for the shortfall.

What you mean is that this is your personal opinion. There is no general consensus. In fact i would go as far as to hazard that half your generation will be 100% dependant on SS just as they are now! The people allegedly sucking the system btw are your parents, aunts, uncles, grandparents etc.

As we age it is increasingly obvious to me that what I thought was going to happen did not happen and what I never imagined would happen actually did happen. I actually bought a life insurance policy when I was 21 years old. Stopped it a year later thankfully. When 401ks came out, I was an avid reader of Money magazine, Bloomberg, WSJ and so on. I managed my puny IRA and 401k so that it would do exactly as the Morningstar ratings said it would do, go up. What happened? Well, I got cleaned out in 1987, again in 2001, again in 2008 and now I could care friggin less what my 401k does because I have zero faith in the stock market at all. Now all I care about is my SS check and my wife’s SS check which will end up supporting us while we try to find a few pennies left in our lifetime of investing in IRAs, 401ks and stocks. You want to know what it feels like to be a sheep? Try being a normal investor for the last 30 odd years. BAAAAA….

I’m with you, Sinan. Throughout my career I maxed out my 401k or SepIRA donations. I honestly thought I’d have enough in savings so I’d never have to rely upon SS. It would be just extra, but not needed, income. However, my investments got hit so hard that now I’m forced to live on SS and hope that my investment amount will cover any and all emergencies, etc. I’ll have throughout the rest of my life. It scares the heck out me.

When Congressional representatives or presidential candidates talk about privatizing or eliminating SS and Medicare, I get really scared. I simply no longer have the cash available to manage my modest living expenses without either program as they now exist. Heck, I can’t even afford Medicare Part D! One of my meds, for RA, retails for $1800/mo which means Part D would cost me nearly $20k per year.

Americans who really have played by the rules and done everything right really do deserve better than this GOP Congress is offering us.

Allow me to rephrase: the general consensus among the people my age that I talk to seems to be that we won’t get a dime. Nobody I know is expecting to receive Social Security. And yes, the people sucking the system dry are my parents’ generation — the Boomers. My dad’s sort of a “cusp” Baby Boomer, born in 1944. My mother was born in 1950. They’re Boomers. No two ways about it. I may, however, have mislabeled myself, leading to the confusion. I was born in the late 1970s, which I thought put me on the cusp of Gen-X and Gen-Y. Apparently, I’m more squarely in Gen-X than I thought.

Regardless, I’m not counting on Social Security for my future financial well-being.

If humans behaved like you surmise, we wouldn’t NEED a Social Security program at all. People would be able to accurately anticipate their future needs and automatically save enough for their retirement.

And then there’s the fact that any number of things can happen along the way — such as illness and accident, which wipe out savings regardless of how prudently we plan. And then we’re back to stories of old people dying in the streets again.

Doesn’t the taxpayer receive lots of benefits for his regular tax payments? Medicare? Defense? Environmental protection? Infrastructure improvement? Etc. Etc. Of course payroll taxes are are taxes. A rose by another name doth smell as sweet?

The assessment in your post is absolutely correct. Your SS payroll payment is an investment, which you will withdraw and use its cash value in your golden years. However clearing out the semantics does not absolve it from its major problem: which is, that by 2035, the ratio of potential retirees to working age persons will be 37 percent — there will be less than three potential income earners for every retiree in the population. And therefore at this rate, it will be unsustainable.

Under accrual accounting, the current payroll tax payments would be considered in reference to the future obligations the government incurs for the actuarial value of the benefits it will have to pay as a result of those tax payments. Those who have low, averaged-lifetime earnings are net recipients under the progressive benefit structure of Social Security system. And the redistribution is even greater under Medicare that gives the same benefits to most and less to the high earners in retirement who pay the tax on all their wage income.

So the net-present value of low earners payroll taxes is less than the net-present value the benefits they will receive. I wish the government would “tax” me more to give me stuff worth vastly more than the value of the “taxes” I will pay. Of course doing so requires taxing other people in order to give it to me. Somehow calling my payment taxes undistinguished from the taxes paid by others to give me that stuff seem to ignore the qualitative differences between the two.

But of course, Republicans have run around, trying to convince everyone under the age of 40 or so that SS won’t be there for them, and a lot of people have bought into the idea. Therefore, they clearly perceive it as a tax, and a particularly unjust one at that.

In any case, I always expect to “get something back” from my tax dollars, whether it is explicit like SS or more implicit like bridges and civil society.

There are rumors abroad Boehner is going to cry uncle but with face saving language. Let’s hope so for most people’s sake but either way it’s fine because this is guaranteed to remain on the national radar for at least two more months.

Beyond the policy arguments including the WSJ’s positions on those, the merits of which most people can’t analyze cogently, from a political point of view the perceived and widely publicized split between the Senate Republican’s vote for the bill and House Republicans that won’t vote for is a strategic gaffe. You can’t have 37 Senate Republicans vote for the bill and videos of McConnell high fiving a Democrat over its passage and then have house Republicans then turn it down and not look bad in the media.

From Wapo:

“Senate Minority Leader Mitch McConnell (R-Ky.) left a meeting with House leaders on Friday believing that Boehner and his top deputy, House Majority Leader Eric Cantor (Va.), would find the votes to approve a two-month extension of the tax holiday. Both Boehner and Cantor have since disavowed giving McConnell the go-ahead to make the deal, and McConnell has issued a statement supporting Boehner’s position.”

Here is my prediction.
Boehner will take McConnell’s suggestion, ignoring that it is basically what
Reid, Obama and the Democrats have been suggesting.
He will allow a temporary extension (2 or 3 months) go up for a vote.
But he will wait until after Christmas to make that decision. Stonewalling all
the way. That will score him a victory with his caucus. He will have made
Obama stay in DC over Christmas and only then will he call the House
back to vote on it and it will pass but only barely.
Yes, I think the House GOP is that petty.

“The payroll tax holiday depletes the Social Security trust fund. Eventually the money will have to be recouped.”

I see FDR still has you fooled, even after all these years. SS and Medicare FICA are taxes (chapter 21 of the Internal Revenue Code) and all tax revenue is paid into Treasury General Account. The Social Security Act has a permanent appropriation for the Secretary of the Treasury to transfer from TGA into the Social Security trust funds an amount equal to “100 per centum” of the amount of SS FICA collected (there’s an equivalent section for the Medicare Part A trust fund).

The payroll tax cut bill amended the appropriation by ordering the Secretary to fund Social Security as if 100 per centum of FICA (the tax holiday notwithstanding) were collected, so the trust funds aren’t out a penny. Congress could set the tax holiday rate at 0% and never raise it, Social Security would continue to be fully funded.